Gazprom, Russia’s state-owned natural gas giant has broken ground on the €3.5 billion Bulgarian onshore section of the South Stream pipeline. Disputes between Moscow and Kiev are resurfacing and Russia wants to speedily complete the pipeline.

In return, Gazprom CEO and Chairman Aleksey Miller promised
customers would get discounts on the gas supplies that travel
through Bulgarian territory. Miller also said other local energy
suppliers will have access to the South Stream system, a
condition the company has never before agreed to.

Bulgarian Energy Holding, a state-owned group, will borrow 620
million euros from Gazprom at an annual interest rate of 4.25
percent over 22 years, Economy and Energy Minister Dragomir
Stoynev said at Thursday’s briefing in Sofia.The agreed interest
rate is almost half the before discussed 8 percent.

A big portion of the work will be done by Bulgarian companies,
and Stoynev expects the project to yield revenues of $3.1 billion
between 2013-2014. The only collateral on the loans will be
dividends Gazprom receives from transporting gas through
Bulgaria.

Even though Sofia was among the first countries to sign an
intergovernmental agreement in 2008, negotiations over the
540km-long part of the pipeline were the most difficult for
Gazprom, Kommersant reports.

As gas disputes between Gazprom and Kiev's Naftogas intensify,
the importance of the South Stream project as a bypass to the
traditional route through Ukraine is increasing.

“With the South Stream transit risks are gone forever,”
said Gazprom CEO Aleksey Miller. Transit through Ukraine stood at
61 billion cubic meters in the first nine months of 2013, while
in FY 2012 the figure was at 84.2 billion cubic meters.

The South Stream pipeline will stretch 2400 km and by 2019 could
have a 64 billion cubic meter annual capacity, delivering natural
gas to Bulgaria, Serbia, Hungary, Slovenia, and Austria and Italy
in one direction and Croatia, Macedonia, Greece and Turkey in a
second.

The undersea portion that runs the Black Sea will be able to
transport 15.8 billion cubic meters of Russian gas to Eastern
Europe.

Most recently, Gazprom demanded Ukraine urgently pay a $1 billion
overdue gas bill, raising fears of a new "gas war".
Pricing disputes over advance payments in have caused
major supply disruptions, both in 2006 and 2009, when Russia shut
off gas to Ukraine, leaving many customers without heat.

The first effort to circumvent Ukraine was the Nord Stream project, which connects Russia and
Germany under the Baltic Sea. It is estimated to have cost $7.4
billion and opened in November 2011.